June 18, 2009

‘Buy China’ Policy Set To Raise Tensions

China has introduced an explicit “Buy Chinese” policy as part of its economic stimulus programme in a move that will amplify tensions with trade partners and increase the likelihood of protectionism around the world.

In an edict released jointly by nine government departments, Beijing said government procurement must use only Chinese products or services unless they were not available within the country or could not be bought on reasonable commercial or legal terms.

The government also said it was launching an investigation in response to complaints from domestic industry associations which accuse local governments of favouring foreign suppliers in procurement related to the country’s Rmb4,000bn ($585bn, €421bn, £356bn) economic stimulus package.

“From a domestic political perspective this makes some sense because local governments do tend to favour foreign products in some categories,” Dong Tao, chief China economist for Credit Suisse, said. “But given how important free trade is for China’s economy this is not the right message for them to be sending to the rest of the world right now.”

Just a few months ago Beijing was raging against a proposed “Buy American”clause included in the US economic rescue package. “Some countries raised clauses to prioritise the purchase of products of their own countries in their economic stimulus packages,” Yao Jian, a Chinese commerce ministry spokesman, told reporters in February. “We express deep concern about these [measures] ... under the current financial crisis, measures issued by all countries should not cause negative impacts, and especially they should not send out wrong messages.”

Most economists agree China’s economy is starting to recover as a result of its aggressive stimulus package but the country is still struggling with unemployment and fears widespread layoffs could lead to serious social unrest. “The whole world is dying to see China spread its orders around and save their economies,” said Mr Tao. “But what this policy reflects is heightened anxiety about these job pressures and the potential for social unrest.”

The edict was issued jointly by the legislative office of the State Council, China’s cabinet, the national development and reform commission (the country’s powerful state planning agency) and the ministries of industry and information, supervision, housing, transport, railways, water resources and commerce.

The new edict bans local governments and departments from discriminating against domestic suppliers in their procurement. Foreign companies operating in China argue that the opposite is in fact true and that they have been largely cut out of procurement related to the government’s stimulus package.

“We are puzzled by this discussion, especially since most European companies operating in China are locally incorporated and have not benefited directly from the government’s stimulus package,” said Joerg Wuttke, president of the European Union Chamber of Commerce in China. “Requiring government procurement to favour Chinese goods and services certainly won’t help to address China’s trade surplus of €170bn.”

Trade data in recent months show import volumes, particularly of raw materials, have stabilised and started to increase strongly, while exports have stabilised but remain very weak following precipitous drops in both exports and imports since the fourth quarter of last year. China’s trade surplus rose 15.7 per cent to $88.8bn in the first five months from the same period a year earlier.

“Any movement – overt or subtle – to discriminate against foreign products and services is protectionist and an inefficient use of stimulus funds,” said James Zimmerman, partner with the international law firm of Squire Sanders & Dempsey in Beijing.

Source: http://www.ft.com/cms/s/0/66454774-5a7c-11de-8c14-00144feabdc0.html

Tags: Protectionism, Trade Surplus, Economics, Chinese Stimulus Package, Buy-China provisions, EU Chamber of Commerce in China, Global Economic News, Procurement, Joerg Wuttke, Squire Sanders & Dempsey Beijing,

Posted via email from Global Business News

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